Chevron plans to leave Appalachia, following the footsteps of other giants
Pittsburgh Post-Gazette Dec 11, 2019 4:50 PM
California-based energy company Chevron Corp. is putting its Appalachian oil and gas business up for sale, the company reported this week.
It has about 400 employees in the unit and a regional office in Coraopolis.
Chevron controls about 890,000 acres in the Marcellus and Utica shales across Pennsylvania, West Virginia and Ohio.
The Appalachian shale operations contributed to more than half of a massive impairment charge that the company revealed for the fourth quarter. That charge, which writes down the value of assets on Chevron’s books, will be between $10 billion and $11 billion, the company disclosed Tuesday.
Chevron burst onto the scene in Appalachia in 2011 with a $4.3 billion acquisition of shale gas firm Atlas Energy Inc. Two years later, it paid $17 million for a stretch of land in Moon Township where the company planned to build a new regional headquarters.
Still, Chevron maintained a high profile in the region, working to weave itself into its business and cultural networks.
Some leave, others double down
In leaving the region, Chevron follows in the footsteps of other multinationals that tried out the Marcellus and Utica shale regions but moved on in favor of other projects around the globe.
Indian conglomerate Reliance Industries Ltd bought Pennsylvania Marcellus assets in 2010 only to sell them off for a third of the price in 2017.
Noble Energy Inc., a Texas-based firm that also has projects in West Africa and Israel, made a bet on Appalachia with its $3.4 billion joint venture with CNX Resources in 2011. Six years later, it sold its stake in the venture and left this region.
Royal Dutch Shell, the Dutch giant whose chemicals subsidiary is building a massive ethane cracker plant in Beaver County, shelled out $4.7 billion for Warrendale-based East Resources in 2010. For years now, its drilling activity in Pennsylvania has been pared down significantly after underwhelming results and asset sales.
Yet smaller oil and gas firms are instead going all in on Appalachian shales.
Southwestern Energy Co., which began as an oil and gas driller in Arkansas, sold the last of its assets there last year to focus on its Appalachian portfolio in Pennsylvania and West Virginia.
Texas-based Range Resources Corp., too, pulled back on its operations in Louisiana after its ill-fated 2016 acquisition and rededicated itself to its program in Appalachia.
As did Downtown-based EQT Corp. when its dalliance with geographic diversification resulted in a $2.3 billion impairment ch... — meaning the Permian Basin assets in Texas that EQT bought in 2014 and its holdings in Kentucky’s Huron Shale were actually determined to be worth that much less than what the company had on the books.
The Marcellus Shale, in particular, has taken the mantle as the most productive natural gas play in the U.S., and one of the most cost-efficient.
Oil and gas price slump
Even so, the current price slump is a result of all that productivity — there is too much supply and not enough demand to soak it up.
So, with gas coming out of the ground faster than the U.S. can use it, gas producers are rushing to export their product abroad. Those closest to export terminals — most are on the Gulf Coast — have an advantage, according to Bloomberg Intelligence. Last month, Bloomberg analyst Vincent Piazza predicted that the Haynesville Shale in Oklahoma would see a resurgence because of that dynamic.
The low price of oil and gas — both global commodities at this point — means companies are looking to other aspects of their portfolios to set them apart, and those with more options can get picky.
“Good isn’t good enough,” Chevron’s CEO Michael Wirth said in an interview on CNBC’s show Squawk Box this week, explaining the massive write-down of the company’s Appalachian assets.
“The assets in the Northeastern U.S. simply don’t compete as well for our investment dollar as others do,” he said, adding, “some of our assets may work better for others.”
They can leave the Country, but there is no place to hide from the justice that is coming.
That's the spirit.